Argentine vineyards complain tax proposal would crush business

Cassandra Garrison

Published 1:57 PM ET Wed, 8 Nov 2017
Reuters

BUENOS AIRES, Nov 8 (Reuters) - Wine producers in Argentina, renowned for its plush Malbecs, are furious over a tax proposal they say would crush exports and domestic sales as vineyards struggle after two of their lowest vintages in recent history.

The bill, unveiled last week by President Maurico Macri's government, proposes a 10 percent tax on wine for consumers. Argentine wine is not taxed, unlike beer, mineral water and sugary drinks.

Vineyards in Argentina, the worlds No. 6 wine producer and No. 10 exporter, have struggled to stay competitive internationally due to high labor, shipping and production costs.

While 70 percent of Argentine wine is consumed locally, much of it in the country's famed cafes and steakhouses, years of double-digit inflation has cut domestic sales. Volatile weather ravaged crops for the past two seasons.

Producers say the tax would cripple them and hurt efforts to boost exports just as Macri seeks to open Argentina's economy to the world after more than a decade of protectionism.

"When you don't have a cost advantage in the domestic market, you cannot compete outside because you have a big chunk of your business here," said Rafael Calderon, chief executive of Bodegas Bianchi, a winery based in Argentina's top wine-producing province, Mendoza.

Businesses are generally happy with Macri's tax reform proposal, which aims to slash corporate income taxes. It also aims to be revenue neutral in five years to avoid straining a wide fiscal deficit, so it added taxes on consumption. These included a 17 percent duty on champagne and a doubling in the tax on beer to 17 percent.

OPEN TO DISCUSSION

Macri told Reuters in an interview on Tuesday his government was willing to listen to wine producers' concerns and said he wants Argentina to be a top wine exporter.

"We bet on the future of that industry," he said. "We think we can substantially increase our wine exports in future years if we succeed to open markets because we compete with many other producers."

Government officials, who will meet on Wednesday with the governor of Mendoza, have noted that alcoholic beverages in Argentina are taxed much lower than in other wine-producing countries like Chile, where domestic consumption is taxed at 20.5 percent. Argentine producers are also angry about being lumped into the same category as beer, spirits and sugary drinks. They say wine has proven health benefits.

They note internal consumption fell 9.2 percent in 2016 from 2015 according to the National Institute of Viticulture.

Potentially adding to the sour grapes, Brazil's Agriculture Minister has said the European Union is trying to negotiate access for European wines to the Mercosur trade bloc, which includes Brazil and Argentina.

Argentine wine producers had hoped for a lifeline from Macri to boost exports in the form of financing or subsidies.

"This is an industry the government should help to grow abroad. Nobody can do Malbec better than us," said wine producer Esteban Baigun, director general of Codorniu Group in Latin America.

Baigun said his cost of goods shot up by 47 percent in the last year and it was cheaper to ship wine to China than truck it from Mendoza to Buenos Aires.

Together with other wine producers, he planned to ask the government to consider a gradual tax increase, delaying its start so the industry has more time to recover.

"We understand that we all need to contribute something, but they need to take the consideration that we are struggling," Baigun said. (Additional reporting by Christian Plumb in New York; Editing by Caroline Stauffer and David Gregorio)